Making the Case against Receiving a Federal Income Tax Refund

cityFor years our counselors and educators have been proponents of reducing the dependency on a big tax refund. We were please to see this article released from the National Foundation for Credit Counseling with a three-step plan on reducing the dependency on a yearly tax refund. If you need assistance with any of these steps and you live in Central or Western Oklahoma, contact us at 


NFCC offers three-step plan to replace dependency on refund


Washington, DC – Millions of Americans celebrate receiving an income tax refund each year.  Many of these same people live each month under the burden of financial hardship, struggling to make ends meet, often falling behind on living expenses and debt obligations.

The February poll hosted on the National Foundation for Credit Counseling (NFCC) website revealed that a significant majority of respondents, 58 percent, intentionally plan to always receive an income tax refund, unnecessarily allowing Uncle Sam the use of their hard-earned money, only to have it returned to them without benefit of interest.

“Not only is the American taxpayer self-inflicting financial pain, they are doing so with intentionality,” said Gail Cunningham, spokesperson for the NFCC.  “It boils down to a simple choice of determining if it’s more important to have extra money in their pocket each month or once per year.”

The average income tax refund in recent years has been in the $3,000 range, or approximately $250 per month.  For many people, that amount can mean the difference between financial solvency and financial distress, yet they continue to have too much money deducted from their paycheck month after month.  Further, although well-meaning, many who receive the refund don’t spend it wisely, and even for those who do, once the money is gone, the cycle of struggling to responsibly pay monthly bills begins all over again.

Many consumers argue in favor of an income tax refund saying that it is a forced savings.  That is correct, but there is a better way to save.  The NFCC advises consumers to implement the following three-step program when they receive this year’s refund:


  1. Put this year’s refund into an interest bearing savings account. Upon receipt of the refund, seize the opportunity to establish an emergency savings account.  This will protect against the financial unknown and create a position of financial stability.
  2. Adjust W-4 withholding allowances. Although receiving a refund is not a good idea, no one wants to end up owing the government, either.  To determine the correct number of withholding allowances, use the worksheet at, then submit the revised form to your employer.  Know that changes such as the birth of a child, a death, or divorce may impact the number of necessary deductions, thus requiring further revisions.  An adjusted form may be submitted at any time during the year.
  3. Responsibly allocate additional monthly income as appropriate.  Now that the money that was going to the government is coming to the consumer in the form of a larger paycheck, it is his or her responsibility to make smart decisions regarding how to spend it.  Make it a priority to keep living expenses, the rent or mortgage, utilities, and insurance premiums current.  The next most important payment is any secured loan, for instance a vehicle payment, followed by unsecured debt such as credit cards.  If the savings account has been tapped, replenish it.

This system stops the dependency on an income tax refund, establishes savings, and provides additional money each month in order to remain financially stable.

“Since worker’s paychecks are smaller this year due to the Social Security deduction having been increased to its former level, it becomes even more critical that consumers find ways to increase their disposable income.  For those receiving a refund, adjusting withholding allowances is an easy and effective way to put more money into their pockets each month,” continued Cunningham.

The actual poll question and answer choices are below:

Regarding income tax refunds

  1. I intentionally plan to always receive a refund each year 58%
    1. I intentionally plan to never receive a refund 29%
    2. I have not given it any thought 13%


Note: The NFCC’s February Financial Literacy Opinion Index was conducted via the homepage of the NFCC Web site ( from February 1 – 28, 2013 and was answered by 828 individuals.

The National Foundation for Credit Counseling (NFCC), founded in 1951, is the nation’s largest and longest serving national nonprofit credit counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services. NFCC Members annually help more than three million consumers through close to 750 community-based offices nationwide. For free and affordable confidential advice through a reputable NFCC Member, call (800) 388-2227, (en Español (800) 682-9832) or visit  Visit us on Facebook:, on Twitter:, on YouTube: and our blog:




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